As we go through the fog of modernity, confused by threats of war, toxic politics, terrorism, tech-led job disruption, and natural and human disasters, what is the right development model going forward?

In the post-war period, development was defined by the Bretton Woods multilateral institutions framework, comprising the International Monetary Fund, World Bank and World Trade Organisation. As long as developing countries played by global rules, opening to free trade and following orthodox fiscal and monetary discipline, they could join the global market and enjoy growth.

This creed was severely tested by the Asian Financial Crisis of 1997. Asian economies open to trade and investment suddenly faced a crisis due to sharp capital withdrawals, accompanied by speculative attacks causing devaluations, bank failures and recession. It was not helped by initially wrong policy prescriptions by the IMF, whose orthodox call for tighter fiscal discipline and higher interest rates exacerbated the downturn.

If the period of mercantilism before the Industrial Revolution in the 18th century can be called Capitalism 1.0, and the Industrial Revolution, Capitalism 2.0, the phase from the late 19th century to 2007 can be called Capitalism 3.0. This was the period when the West pushed globalisation, first led by the British Empire (version 3.1) and then the US after the second world war (version 3.2).

Capitalism 3.3 truly achieved globalisation through the rapid spread of markets, made obvious by China joining the WTO in 2001, creating new heights in global trade and investment. The global supply chain, of which there are two obvious wings，– between Europe and the US, and between East Asia and US/Europe – but with raw materials and components sourced from everywhere, was essentially created through technological improvements in shipping, air and land transport, telecommunications and, since 1991, the internet.

The arrival of the internet accelerated the networking of trade and investment and, more importantly, finance and digital data. Since friction costs (or transaction costs) are higher for physical goods than virtual goods, finance and knowledge spread faster through technological improvements.

By 2007, Capitalism 3.3 appeared unassailable. The accepted development model for all emerging markets was to plug into the global supply chain, comply with WTO rules and Bretton Woods advice. Failure to do so could be attributed to policy mistakes or bad execution, through either incompetence, bad governance or corruption.

The global financial crisis of 2007-2009 shattered confidence in Capitalism 3.0, because it revealed massive inequities and an inability to deal with rising climate change, fundamentalism in the guise of populism and clear inadequacies in mainstream economic theory to deal with such crises.

Those in the tech revolution are already mapping out Industry 4.0. The Davos World Economic Forum associated Industry 1.0 with the steam age, the second with the electrical age, the third, the digital revolution and the fourth to the new internet of industry. Today, technological breakthroughs in robotics, nanotechnology, biotechnology and artificial intelligence create new goods and services, requiring new governance.

The problem with Industry 4.0 is whether emerging markets can cope with the speed, scale and scope of technological change, on top of rising natural disasters, urban congestion, pollution and other problems. Industry 4.0 seems to be creating a new age of even more dominance by giants.

Capitalism 3.0 became capital-friendly and a disaster for labour because, instead of bringing prosperity for all, it brought a better life for the 1 per cent. Populism arose because even the middle class in advanced countries realised capitalism did not benefit all. If rich countries with the resources to deal with both technological disruption and natural disasters have trouble coping with Capitalism 4.0, what is the new model for emerging markets?

I wonder if Adam Smith would turn in his grave if he realised that free market ideologues used his ideas in TheWealth of Nations to allow a small elite to get rich at others’ expense. Omitting “political” from “political economy”, neo-classical free market ideologues promoted positive economics and pushed the idea of “rational man”, assuming away important parts of human behaviour like politics, psychology, sociology and anthropology. Searching for the physics of economic behaviour, mainstream economics missed the point of a political economy – man is not a machine.

In short, Development 4.0 is not about more money, but how to live happily, peacefully and prosperously, in harmony with each other and nature, and continually evolve with technology and each other. Development 4.0 is not going to be a one-size-fits-all model, but diverse ways to think about our future. Mapping these pathways will be an achievement in itself.